Countdown to election 2016

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20+ candidates, 22+ months of campaigning, 24 televised debates/ town halls and more than $1 billion spent and we are down to the last five days of the 2016 election cycle.

The past eight years have been filled with economic ups and downs, but in recent years, success has trounced challenges. GDP has grown by 15.4 percent since 2009, while 15.3 million jobs have been created since 2010 with job creation present for the past 72 months, shifting the unemployment rate down from 7.8 percent to 5 percent. Furthermore, job openings reached a record high of 5.9 million, cementing the notion that runway for the current economic recovery exists. Since 2009, consumer confidence has rebounded, registering 104.1 points in September, the highest level since August 2007 and double the level of July 2010, as jobs are available and wages have increased annually by more than 2 percent every month since January 2015.


As the economy has moved from recovery to expansion, the commercial real estate leasing, investment and development markets have shifted considerably. In 2009, leasing activity was slow, availabilities were high, pricing was depressed and sales and construction activity were nonexistent across all five major property types. In 2016, the commercial real estate markets are in a fundamentally different state, with all five major property types exhibiting tightening market fundamentals characterized by occupancy gains, vacancy declines, rent growth, construction groundbreakings and high demand from investors to allocate capital into the commercial real estate sector.

  • In the U.S. office market, occupancy gains have totaled 199 million square feet from 2009 to 2016 as supply levels have ballooned 226 million square feet (approximately the size of building three San Francisco office markets around the country). Vacancy in the office sector over the past eight years has fallen 410 basis points to 14.5 percent, while rents have grown by 13 percent. The most significant shift we have witnessed in leasing fundamentals is the frequency at which tenants have expanded their real estate footprint. In 2009 and 2010, less than 10 percent of all tenants larger than 20,000 square feet were growing their real estate footprint. From 2014 to 2016, 48 percent of tenants larger than 20,000 square feet grew their real estate footprint. The most significant growth in leasing, rents and development has been concentrated in tech-oriented markets such as the Bay Area, Seattle-Bellevue, Portland, Austin, Raleigh-Durham and Boston, among others. In contrast, two markets that have not fared as well over the past eight years have been Washington, DC, which was crippled by sequestration from 2011 through 2015, and New York, where an enhanced regulatory environment, coupled with technology advances, has led to downsizing in the banking and finance sector.
  • In the U.S. industrial market, occupancy gains have totaled 928 million square feet from 2009 to 2016, surpassing new supply levels, which totaled 698 million square feet (approximately the size of building nearly four Miami-Dade industrial markets around the country). Vacancy in the industrial sector over the past eight years has fallen 420 basis points to 5.8 percent, while rents have grown 6.3 percent. In the last six years, primary industrial hubs like the Inland Empire, Dallas, Atlanta and Miami have seen a decline in vacancy over 600 basis points. Consistent increases in industrial demand and a lack of available, quality product have compressed vacancy well below their 10-year moving averages in many other primary and secondary markets throughout the country.
  • In the U.S. multifamily market, occupancy gains have totaled 1.1 million units from 2009 to 2016. Despite constant reporting of oversupply issues, new demand has outpaced new supply, which grew by 972,000 units during the same time frame. Vacancy in the multifamily sector over the past eight years has fallen 350 basis points to 4.5 percent, while rents have grown 20 percent, leading all other property sectors in rent appreciation. Steady job and wage growth gains in local and regional economies dating back to the end of 2010 have consistently encouraged household formations concentrating in major metropolitan areas or in well-positioned closeand-in suburbs. Policies that have promoted development, those of the infrastructure or transportation variety, and in conjunction with an emphasis on knowledge and human capital at both a university and an entrepreneurial level, have spurred diverse opportunities in the Western region. The tenor of these economies have ranged in scope from the high-tech metropolises of the Bay Area to the modernizing and diversifying economies of Denver and Portland.
  • In the U.S. retail market, occupancy gains have totaled 541 million square feet from 2009 to 2016, slightly surpassing new supply levels, which totaled 502 million square feet. Vacancy in the retail sector over the past eight years has fallen 230 basis points to 5.1 percent, yet rents remain below prior peaks, falling 8.2 percent from 2009 to 2012 but recovering some of those losses recently with rent growth of 7.2 percent since 2013. The greatest compression has been concentrated in Sunbelt markets such as South Florida, Dallas, Houston and Atlanta. Low vacancies have continued in New York, where prime corridor rents are the highest in the nation. However, there was a slight increase in vacancy in Manhattan (20 basis points) from 2009 to 2016 due to some recent pushback from retailers in response to sky-high rents.
  • U.S. lodging fundamentals achieved a robust recovery from 2009 to 2015, with revenue per available room (RevPAR) averaging 6.6 percent annual growth during that period, driven by 2.9 percent and 3.5 percent average annual increases in occupancy and average daily rate (ADR), respectively. The most recent trailing 12 months of national hotel operating performance remains positive as RevPAR grew 3.6 percent compared to the same period last year. Over the course of the economic recovery, drivers of lodging fundamentals include the return of group demand as well as supply growth remaining below the long-term average, among other factors. Markets that have sustained notable RevPAR growth include Nashville, San Francisco, Tampa, Oahu and Los Angeles.
  • From a capital markets perspective, overall volumes have increased from $54 billion in 2009 to $313 billion in 2013 to $464 billion at year-end 2015, a 7.5x increase since 2008. During this time, closed end real estate funds have raised nearly $400 billion of capital, foreign investors have placed record levels of capital— exceeding $200 billion, and New York surpassed London as the most active real estate investment market globally. As this demand to place capital has grown, so too has pricing, with commercial price indices increasing 54.2 percent over the past eight years with the greatest price movement in multifamily, followed by CBD office and industrial with retail and suburban office lagging at pricing barely above prior peaks. Similar to pricing, cap rates have trended down across major markets from 6.5 percent to 4.6 percent with office with the most drastic decline of 220 basis points. As a result, confidence in the underlying fundamentals, an increased appetite for risk and current core pricing levels are now expanding liquidity for value add and opportunistic investment opportunities, outpacing liquidity and the expansion thereof compared to core product. From a regional perspective, primary warehouse and distribution markets continue to drive demand in industrial, while an appetite for value add product drive office liquidity, downtown and infill suburbs drive multifamily, and urban corridors and Class A malls drive retail.

Read more in our Countdown to the Election, where we examine economic and commercial real estate activity with Washington policies. 

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